Tag: India Inc

Role reversal: India Inc ‘lending’ to banks via AT-1 bonds

Banking & Finance

[ad_1]

Read More/Less


A role reversal seems to be happening in the Indian financial markets, with India Inc lending to banks instead of borrowing from them.

High returns on investments in Additional Tier-I (AT) bonds issued by public sector banks is proving to be attractive for large corporates even as bank credit to them has declined.

This development comes amid mutual funds avoiding AT-1 bonds (Perpetual Debt Instruments) due to SEBI restrictions.

Given that corporates have substantially deleveraged over the last few years and are sitting on the fence when it comes to fresh capital expenditure, they are channelising their surplus funds parked with banks and mutual funds into AT-1 bonds, according to a fund manager with an MF.

Bank credit to large industries contracted by 1 per cent in September 2021 against a contraction of 0.2 per cent a year ago, per latest RBI data.

Opportunistic investment

The investment by corporates in PSBs’ AT-1 bonds is opportunistic. Banks are offering relatively higher interest rates on these bonds to attract investors after SEBI’s March 2021 circular on “investment in instruments having special features and valuation of perpetual bonds” discouraged MFs from investing in them.

Union Bank of India recently raised ₹2,000 crore via AT-1 bonds at a coupon rate of 8.70 per cent. The PSB had earlier mopped up resources via AT-1 bonds twice — ₹1,000 crore (coupon: 8.64 per cent) in early January 2021 and ₹205 crore (8.73 per cent) late the same month.

Though AT-1 bonds are perpetual in nature, banks usually exercise the call option at the end of five years from the date of issuance. So, a corporate can earn higher returns by investing in these bonds than by parking in a five-year term deposit which fetches about 5.50 per cent.

PSBs are raising resources through AT-1 bonds as they have call options due in the current fiscal and the next on the bonds they had issued earlier. Bank of Baroda, Canara Bank and Punjab National Bank are among the PSBs believed to be considering raising resources via AT-1 route.

MFs shrink away

Among the reasons for MFs to keep away from these bonds is that their maturity is treated as 100 years from their date of issuance for the purpose of valuation as against the current practice of valuing them based on the time left for the next call option date.

So, MFs fear mark-to-market losses due to this change in the valuation norm, for if interest rates rise, the price of longer tenure bonds will depreciate much more than the short-to-medium term instruments.

By ICRA’s estimates based on industry data, MFs held 30 per cent of the outstanding Tier-I bonds and 14 per cent of the outstanding Tier-II bonds as on February 2021.

The credit rating agency assessed that the holding of Basel III compliant AT-I and Tier-II instruments is estimated at 8 per cent of the assets under management of MF schemes holding these instruments, thereby limiting the headroom for incremental investments.

ICRA, in its outlook for the banking sector for FY22, had estimated the Tier-I capital requirements for PSBs at ₹43,000 crore, of which ₹23,000 crore is on account of call options falling due on AT-I bonds, while the balance is estimated as the equity.

[ad_2]

CLICK HERE TO APPLY

Leave a comment , , , , , , , , ,

BNP Paribas keen to become ‘go to’ bank for India Inc’s overseas buys

Banking & Finance

[ad_1]

Read More/Less


BNP Paribas,which operates in over 70 countries, sees itself emerging as the “go to” investment bank for Indian corporates looking to expand their global footprint through the mergers & acquisitions (M&A) route, Aymar de Liedekerke Beaufort, Head of Territory, India, has said.

“We do see several Indian corporates emerging as champions (at the global stage). We want to work with the top 100 Indian corporates and believe many of these will have specific acquisitions to do in Europe and this is where they may need a bank like us,” Beaufort told BusinessLine in an interview.

Beaufort, who is also the chief of Corporate and Institutional Banking in India, highlighted that Indian corporates have begun to acquire companies abroad for specific needs such as technology and BNP Paribas with its huge global network and one client approach can add value to those corporates looking for specific growth opportunities.

“It’s always good for a CFO to be able to talk to a banker in Delhi, Mumbai and Chennai and deal with the same bank in Argentina, Korea and Vietnam. We as biggest Euroland investment bank bring network benefits for our clients and for us it is one client approach wherever you go in any part of the world,” he said.

There are good chances where BNP Paribas will know both the buyer ( in India) and seller (in Europe) and this is the trend that is likely to play out in coming days, Beaufort added.

He highlighted that Indian corporates in the IT and pharma sectors are already active on overseas acquisitions in recent days.

“We are positioning ourselves as top leader for banking needs of Indian corporates. We bring an angle that others cannot bring by being the best and biggest market cap in Europe,” he said.

New economy

Beaufort said that BNP Paribas India also wants to move from old economy to new economy and get closer to the champions of the new economy. “That is our vision of next ten years. We want to be closer with those companies that are potentially not part of the top hundred today but will become top hundred in next five years. We need to be agile to look at Indian digital businesses and capture them as they grow”, he said.

Asked if he sees investment bank or corporate banking (BNP Paribas is not into retail banking in India) as growth driver for BNP Paribas India in coming days, he said, “Going forward, I do see both growing, but very difficult to say if both will grow at the same speed. I believe our Investment Banking pie will grow quicker. I do expect more commoditisation of corporate banking as it gets digitised.”

Also, BNP Paribas —just as it wants to be seen as the window to Europe for Indian corporates — is keen that its European corporate clients see it as the window for their journey outside of Europe.

Beaufort, who has been with BNP Paribas for more than 30 years, also oversees as part of his responsibilities the bank’s back-office operations and retail brokerage arm Sharekhan.

Investment destination

He also said that India is even more attractive today as an investment destination than before. This is because other destinations may become more challenging and prospects for India is getting better and better.

“India is in competition with the rest of the world. India has lot to offer by sheer size. Just as corporates focus on client centricity, India should focus on investors to convey that they are welcome and their coming in is seen as positive. Nobody will have wrong perception that India is looking to push their local champions. It’s normal and every country does it, but you have to do it in a fair and transparent way so that foreigners don’t feel they have no space for them,” he said.

Asked if BNP Paribas will look to enter retail banking in India, he replied in the negative. “We don’t expect to be competing on solutions where local banks will be much better than us,” he added.

[ad_2]

CLICK HERE TO APPLY

Leave a comment , , , ,

Banks’ credit growth gradual in August, industry weakest link, says ICICI Sec, BFSI News, ET BFSI

Banking & Finance

[ad_1]

Read More/Less


The overall credit growth of banks in August has been gradual from July, with signs of improvement only in pockets, ICICI Securities said in a report.

Industry credit continues to be the weakest link, dragging overall credit growth.

The industry, which comprises 29.2% of total non-food credit, was down 0.2% on month. Under-utilisation of existing sanction limits, modest demand outlook and run-down of exposure in few sectors were among the key factors, the brokerage said.

However, the brokerage expects industry credit to revive in the near future, given economic recovery from the COVID-19 crisis.

“We believe India Inc is now better positioned and confident to anvil on the path of re-leveraging. Indian financiers, too, have saddled themselves with ample liquidity to tap the emerging opportunity. Recovery in economic activity and the derivative effect of increased investments and corporate, government spending on consumption will sustain the momentum of more than 15% growth over FY22-FY25,” ICICI Securities said.

Also read: Banks’ credit outlook ‘stable’ for FY22, says Crisil Ratings

Credit extended for home loans has stayed put since March, up 0.8% year-to-date, while vehicle loans moderated to a 1% month-on-month accretion and is likely to pick up during the festive season.

Other personal loans also saw a strong momentum, up 18% on year.

With gradual easing of COVID-19 restrictions, credit card portfolio sales have risen 3.9% on month and 10.3% on year, witnessing the quickest recovery as business activity levels revived, the brokerage said.

Credit to non-food sectors was up a mere 0.5% on month and 6.7% on year, with agri and retail being the main drivers.

Retail credit is sustaining double-digit growth, but has not been robust, despite relaxation of COVID curbs, the brokerage said. The growth in retail credit was primarily due to the traction in vehicle and personal loans, and credit card sales.

Roads, airports, railways, iron and steel, cement, telecom and sugar are among the key sectors that are continuously deleveraging, the brokerage said.

“We believe industry growth will have to emerge as a key driver to boost credit growth in coming years. While it may happen with some lag, revival in consumer demand and rise in government spending can be potential triggers,” the brokerage said.

Credit to micro, small and medium enterprises was up 4% on month and 63% on year, the brokerage noted.

Lending to housing finance companies was up 21% on month, while loans to public public financial institutions was down 1% on year. After running down high risk assets, NBFCs are now pursuing growth opportunities in a risk-calibrated manner, the brokerage said, adding that now bank lending to NBFCs should stabilise.



[ad_2]

CLICK HERE TO APPLY

Leave a comment , , , , , , ,

India Inc’s ECB mop-up soars 60% y-o-y in July at $3.4 billion

Banking & Finance

[ad_1]

Read More/Less


India Inc raised 60 per cent more via external commercial borrowings (ECBs) in July 2021 at $3.434 billion against $2.147 billion in the year-ago period.

The quantum of resources mopped up via ECBs in the reporting month is also 131 per cent more vis-a-vis $1.484 billion in June 2021.

Overall, during the first four months of the current financial year, India Inc raised $8.024 billion. This is 42 per cent more than the year-ago period’s $5.654 billion.

This indicates that Indian companies are actively tapping overseas financial markets to take advantage of low interest rates before the US Fed starts tapering of bond purchases.

The resource raising via ECB comes even as banks’ credit growth continues to be tepid. As per RBI data, on a year-on-year (y-o-y) basis, non-food bank credit growth stood at 6.2 per cent in July 2021 as compared to 6.4 per cent in July 2020.

Among the companies that raised big monies in July 2021 include Adani Ports And Special Economic Zone Ltd ($750 million), Indian Oil Corporation Ltd ($500 million), REC Ltd ($400 million), Matix Fertilisers And Chemicals ($320 million/ 4 years and 11 months), Adani Electricity Mumbai ($300 million), Housing Development Finance Corporation ($250 million) and Matix Fertilisers and Chemicals ($237.5 million/ 21 years).

ECBs are commercial loans raised by eligible resident entities from recognised non-resident entities. These loans are required to conform to parameters such as minimum maturity, permitted and non-permitted end-uses, maximum all-in-cost ceiling, etc.

[ad_2]

CLICK HERE TO APPLY

Leave a comment , , ,

FM asks India Inc to look beyond banks for finance, BFSI News, ET BFSI

Personal Finance

[ad_1]

Read More/Less


Mumbai: Finance minister Nirmala Sitharaman told India Inc on Tuesday that there is a move to enable the industry to meet its funding needs from markets rather than banks. Among alternate financing measures, the government is looking at allowing insurance bonds instead of bank guarantees, a senior government official said.

In her first visit to Mumbai after the second wave of the pandemic, the finance minister addressed industry leaders at a Confederation of Indian Industry (CII) interaction on Tuesday evening. Later, she attended a dinner meeting with industry chiefs, including Tata Group chairman N Chandrasekaran.

The FM said that industry dependence on banks would be further reduced by the operationalisation of the new development finance institution, which will take over long-term lending and also provide competition to banks. The FM emphasised the need for government and industry to work together to “create India’s own equity capital”.

Follow and connect with us on , Facebook, Linkedin



[ad_2]

CLICK HERE TO APPLY

Leave a comment , , , , ,

Crisil Ratings revises India Inc’s credit quality outlook to ‘positive’

Banking & Finance

[ad_1]

Read More/Less


Crisil Ratings has revised the credit quality outlook of India Inc for fiscal year 2022 to ‘positive’ from ‘cautiously optimistic’ earlier.

Subodh Rai, Chief Ratings Officer, Crisil Ratings said, “Our outlook factors-in strong economic growth, both domestic and global, and containment measures that are localised and less stringent compared with the first wave, which should keep domestic demand buoyant even if a third wave materialises. We believe India Inc is on higher and stronger footing.”

The credit ratio (upgrades to downgrades) in the first four months of this fiscal improved to more than 2.5 times. It had touched a decadal low of 0.54 time amid the first wave in the first half of fiscal 2021, before recovering to 1.33 times in the second half, buoyed by a rebound in demand.

Broad-based recovery

A Crisil Ratings study of 43 sectors (accounting for 75 per cent of the ₹36 lakh crore outstanding rated debt, excluding the financial sector) shows the current recovery is broad-based. As many as 28 sectors (85 per cent of outstanding corporate debt understudy) are on course to see a 100 per cent rebound in demand to pre-pandemic levels by the end of this fiscal, while six sectors will see upwards of 85 per cent.

Among sectors with the most rating upgrades, construction and engineering, and renewable energy benefited from the government’s thrust on infrastructure spending, while steel and other metals gained from higher price realisations and profitability. Pharmaceuticals and specialty chemicals continued to see buoyancy backed by both, domestic and export growth.

But contact-intensive sectors such as hospitality and education services continue to bear the brunt of the pandemic and have had more downgrades than upgrades.

To be sure, targeted relief measures by the Reserve Bank of India (RBI) and the government amid the second wave have cushioned credit profiles in some sectors.

Somasekhar Vemuri, Senior Director, Crisil Ratings said, “Besides regulatory relief measures, a secular deleveraging trend has provided India Inc the balance sheet strength to cushion impact on their credit profiles. The median gearing for the CRISIL Ratings portfolio (excluding the financial sector) declined to ~0.8 time at the end of fiscal 2020 and then to an estimated ~0.7 time in fiscal 2021, from ~1.1 times in fiscal 2016.”

That said, unsecured retail and micro, small and medium enterprise loan segments are likely to witness higher stress over the near term. “The key monitorables from here would be a fat tail in the second wave or an intense third wave. Other risks to the positive credit outlook include regional and temporal distribution of rainfall and its implications for sustained demand recovery. Small businesses, in particular, will be more vulnerable to any slack in demand,’ the ratings agency said.

[ad_2]

CLICK HERE TO APPLY

Leave a comment , , , , ,

Bankers hopeful of a revival in corporate loan growth as economy opens up, BFSI News, ET BFSI

Banking & Finance

[ad_1]

Read More/Less


Bank credit to industry remains muted, falling 1.7% in the year to date, with companies slashing debt and harnessing existing capacities in a demand environment made uncertain by the pandemic. But bankers expect a revival in corporate loan growth as the economy opens up, making a strong business case for capital expenditure.

Chunky industrial loans, which make up about 30% of non-food credit, have witnessed lukewarm demand so far in 2021, latest central bank data showed, underscoring a trend among companies to conserve cash, deleverage as much as possible, and leave under-utilised the respective loan limits sanctioned by lenders. Retail credit demand has expanded, however, through the period of episodic lockdowns and curbs on mobility.

Both analysts and bankers believe credit demand will now pick up as companies invest for the next cycle of growth. In a report published earlier this month, Japanese investment bank Nomura said growing optimism and abundant liquidity should boost loan demand.

“Banks expect an across-the-board improvement in demand through Q1 2022, with optimism levels the highest for retail loans, followed by manufacturing and services, while infrastructure loan demand lags,” Nomura said. “The simultaneous rise in loan demand and easing of loan supply conditions suggest that credit growth should eventually pick up.”

An uncertain business environment led to muted credit demand from traditionally asset-heavy industries, such as industrial metals, metal products, iron and steel, construction and cement. Instead of adding more debt to their balance sheets, several companies in these sectors sought to deleverage, harnessing cash flows to improve their debt profiles.

Incidentally, better profiles should now encourage many companies to add debt as expansion capital.

“We believe India Inc, after undergoing a phase of deleveraging over the past few years, is now better positioned … (for) re-leveraging. Indian financiers, too, have saddled themselves with ample liquidity or capital buffers to tap the emerging opportunity,” ICICI Securities said in a note. “Recovery in economic activity and the derivative effect of increased investments and corporate/government spending on consumption will sustain the momentum of 15%-plus growth over FY22-FY25.”

To be sure, cheaper rates in the local and overseas bond markets meant that companies looked to those sources for their short- and medium-term funding needs instead of banks.

Bankers believe that as companies embark on large projects, loan demand will rebound. For instance, Bank of Baroda reported a year-on-year fall of 10% in corporate loans as it shed low-yielding advances in the first quarter. But CEO Sanjiv Chadha said he expects loan growth to pick up this year, helping the bank expand its loan book by 7% to 10%. That would include a 5% to 7% expansion in corporate loans.

“Retail loans will still grow faster than corporate loans but we are seeing an uptick in demand from road projects, city gas projects and renewable energy projects, which will help the demand for loans,” Chadha said during the bank’s first-quarter earnings call.

Retail loans have expanded 12% on-year, helped by a low base and paced by demand for homes and vehicles. Credit card spending fell.

Home loans expanded 10% and vehicle loans 11% despite the lockdowns through April and May. But outstanding credit card loans fell 12% year-on-year as consumer sentiment was hit by localised lockdowns.

State Bank of India (SBI), which reported a 2.3% fall in corporate loans, also expects the situation to improve this fiscal. Chairman Dinesh Khara said he expects demand from companies to improve, boosting its loan margins, as both individual and industrial borrowers add more loans.

To be sure, demand from industry is crucial to prop up overall credit growth.

“We believe industry growth will have to emerge as a key driver to boost credit growth in coming years. While it may happen with some lag, revival in consumer demand and rise in government spending can be the potential triggers,” ICICI Securities said.



[ad_2]

CLICK HERE TO APPLY

Leave a comment , , , , , , , , ,

Government will do ‘everything’ to revive growth, says finance minister, BFSI News, ET BFSI

Personal Finance

[ad_1]

Read More/Less


NEW DELHI: The government is committed to doing everything that is required to revive the economy, finance minister Nirmala Sitharaman said on Thursday as she assured industry about the Centre’s commitment to reforms and urged India Inc to come out in a big way and show its risk taking abilities.

Addressing the annual session of the Confederation of Indian Industry (CII), Sitharaman also said the government and the RBI will both push growth and take all necessary steps to keep inflation contained.

“Government’s commitment to recovery is shown in so many different ways and we are going to continue doing that because recovery and its sustainability is something which the PM is very keenly invested in,” said Sitharaman.

“I am not looking at growth versus inflation. We shall attend to inflation and keep it contained, take all the necessary steps but never forget the fact that growth is that will make all the difference to the economy’s revival, growth will eventually remove poverty and bring in a level-playing field for all Indian citizens,” FM said, adding that both the Centre and RBI are working as partners to address issues linked to the economy.

She said the messages and the indications that are coming in are very clear that the economy is revving to come out. The FM said the financing needs of the growing economy have been successfully met by the over Rs 5 lakh crore of capital, which was put in the hands of various stakeholders through the credit outreach programmes of the government.

Sitharaman also said the economy has not reached a level where the liquidity which was pumped in during the pandemic can be pulled back.

“I don’t think we have reached that level and I am glad that RBI has been voicing that understanding that too quick a retrieval or sucking out of the liquidity from the economy may not do the necessary stimulus, which is required. I am glad that RBI has kept that understanding and they have not given any indication about wanting to suck out the liquidity which is available there,” the FM said.

Sitharaman cited the passage of crucial bills in Parliament in the just concluded monsoon session as the government’s commitment to push ahead with reforms. The FM made it clear that the government will push through stake sales in all the companies such as Air India, BPCL this year as well as proceed with the asset monetisation plan. “Policy-driven disinvestment and privatisation will continue with the same fervour,” said Sitharaman, adding that “necessary rigorous work is going on and the government is committed to the disinvestments announced in the budget.

The FM urged the industry to venture into new areas and take decisions to expand.

“I thank the Indian industry for being very level headed to face the challenge of the first and even face the challenge of the second wave of Covid-19 when many countries are still wondering how they would face their economy and pick the economy from where it is left behind,” said Sitharaman.

“Indian industry is moving into totally new areas. It is time for the Indian Industry to come around in a big way and it is time to show its risk-taking capacity”, said Sitharaman, adding that the stock market was showing the way. “Please do follow it,” said the FM.



[ad_2]

CLICK HERE TO APPLY

Leave a comment , , , , , , ,

Companies don’t want to reveal loan details to public, BFSI News, ET BFSI

Banking & Finance

[ad_1]

Read More/Less


Starting August, the Reserve Bank of India (RBI) made it mandatory for credit-rating agencies (CRAs) to disclose bank-wise term-loan details of clients or the borrowers for whom ratings were reaffirmed or freshly given.

This mandate was given to the CRAs early this year with the objective to increase disclosures in rating reports. CRAs began implementing this order from the central bank, but sources in the know say India Inc. is resisting such disclosures. “Many companies have expressed their discomfort in divulging bank-wise details of loan exposure and don’t want it to be part of the rating rationale,” says the CEO of a leading CRA.

India Inc. on its part has also approached the central bank to reconsider its stand on such disclosures. Some large conglomerates have written to the RBI asking it to withdraw this requirement. “Information shared with banks and CRAs is highly confidential and is governed by client privilege. Why should such important information be made public?” asks the CFO of a leading cement company.

To put things in context, there are three segments which make up rating documents. Rating rationale captures the score ascribed to the instrument or loan exposure under review and also explains how the score or rating was arrived at. As part of improving transparency, CRAs are required to disclose bank-wise outstanding of the borrower and this is required for fund and non-fund-based exposures as an annexure to the rating rationale.

Whenever there is an increase in credit facility and/or change in composition of term loans, it has to be updated in the annexure. Among the other two documents – rating perspective and rating letter, the former is a paid service which has elaborate details of the client. The rating letter is a confidential communication between the borrower (client) and the CRA and is shared with bankers of the client. This enumerates lender-wise and facility-wise exposure of the borrower.

“For new rating engagements, we have started following this method of reporting. However, in case of legacy clients, some are not comfortable adopting this format of disclosure,” says a senior rating officer of a CRA. On whether such clients should be classified as non-cooperative or not, CRAs say they would first intimate the RBI about such clients. “Technically they are not non-cooperative. They are only resisting certain disclosures being made public,” he adds. “It’s now for RBI to take a call on the matter” says the CFO quoted earlier.

According to highly placed sources, this time around it is unlikely that the RBI would budge on requests from India Inc. Bank-wise public disclosure of loan details in the credit-rating documents was something which was in the works for several years and it has now been implemented. “If the objective is to disseminate as much information as possible, why should the RBI roll back this requirement?” asks the person quoted earlier.



[ad_2]

CLICK HERE TO APPLY

Leave a comment , , , , , ,

India Inc cut Rs 1.7 lakh crore debt during pandemic, leave banks high and dry, BFSI News, ET BFSI

Banking & Finance

[ad_1]

Read More/Less


Ignoring the government exhortations to unleash animal spirits and step up investments in the country, India Inc preferred to play safe during the pandemic.

The corporate world focused on deleveraging high-cost loans through fund raising via bond issuances despite interest rates at an all-time low. This has led to muted credit growth for banks.

According to data analysis SBI research wing, the top 15 sectors with more than 1,000 listed entities reported over Rs 1.7 lakh crore of debt reduction in 200-21.

Refineries, steel, fertilizers, mining & mineral products, and textile alone reduced debt by more than Rs 1.5 lakh crore during FY21.

Fertilizers, mining and minerals, FMCG, cement products, consumer durables, and capital goods were among the sectors where loan reduction of 20 per cent or more was reported during FY21.

According to data from the Reserve Bank of India, loan growth fell to a 59-year low of 5.6% on year as of March 31. Credit was logging a 6.4% in the previous fiscal.

Low interest rates

As interest rates drop to an all-time low, corporates are reducing their loan liabilities to facilitate a lower finance cost, which resulted in the primary issuance of bonds to increase by nine per cent.

The spread of AAA bonds for a 10-year tenor declined from 124 bps in April 2020 to 70 bps in April 2021.

Similarly, the spread for 5 year and 3-year bonds declined from 89 bps and 147 bps in April 2020 to 9 bps and 30 bps in April 2021 respectively.

“This trend is continuing in FY22 also,” said Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India.

These companies not only reduced their loan liabilities at lower finance cost, but also increased their cash and bank balance by around 35% in March, as compared to March 2020, suggesting a conservative approach to conserve cash during uncertain times.

Corporate willingness for new investments also remains tepid as the economy is still recovering from the second wave.



[ad_2]

CLICK HERE TO APPLY

Leave a comment , , , , ,
1 2